Will slump in TV viewership hit media in upfronts?

Quarterly earnings are due from CBS Corp., Time Warner Inc. and Viacom Inc. this week, and analysts will be looking for indications that a decline in viewership so far this year can be reversed, or at least fully explained.

Total TV viewing by adults 18 to 49 years old is down 3.7% in the 2011-12 season. Observers have speculated that the decline is tied to the increasing popularity of online video streaming of TV shows and movies from services such as Netflix Inc.
, Amazon.com Inc.
and Hulu, which is owned by NBC Universal
, Walt Disney Co.
, News Corp.
, Providence Equity Partners and Hulu employees. (News Corp. is the parent of MarketWatch, the publisher of this report.)

This would support the theory of so-called “cord-cutting,” in which consumers opt out of cable or satellite service and choose the cheaper option of streaming just the shows they like, even if the episodes are not from the current season.

The television industry has downplayed cord-cutting, saying subscription numbers have yet to show any real signs of such a phenomenon. Executives in the business have also advanced the idea that streaming has actually increased overall television viewing because people can more easily sample shows they might be interested in.

The first-quarter numbers have challenged that premise.

Sanford C. Bernstein analyst Todd Juenger told his clients this month that the viewership drop reflects fewer television households than there were in the year-ago period, though even if the number of TV households was the same year over year, the decline would have been nearly 3%.

Juenger said he is convinced that the weak economy is the main culprit. “While we don\’t deny there are real live cord-cutters running around in the world, we are more inclined to believe the decrease in TV households primarily results from … the phenomena of 20-something young adults increasingly living with their parents,” instead of establishing their own separate living quarters as they would traditionally.

For the big media conglomerates, Juenger said, there is real risk heading into this month’s sale of commercials in advance for the 2012-13 season. The broadcast and cable networks could feel comfortable enough to predict a ratings rebound and charge ad rates commensurate with such an increase. Revenue would climb if they are on target. However, if the ratings fall short of their projections, the networks would be forced to offer refunds to advertisers, known in the business as “make-goods.”

The analyst predicts there will be little trouble at CBS
, which is slated to report first-quarter results after the market closes on Tuesday.

Analysts are expecting to see a profit of 44 cents a share on revenue of $3.78 billion, according to a poll taken by FactSet Research. In the same period last year, the company earned 29 cents a share on sales of $3.51 billion.

Juenger said CBS’ solid, traditional lineup offers advertisers “consistent ratings,” and that most of those on the buy side are expecting the company to beat expectations.

Another factor in CBS’ favor is its deal with Netflix, announced in February of 2011. David Miller at Caris & Co. noted that this will be the fourth straight quarter to benefit from the Netflix agreement, which includes older library programs such as the original “Hawaii Five-O,” every incarnation of “Star Trek” and “Cheers.” Since the costs for those shows are almost completely amortized, Miller said, the margins are very high at 60%.

Time Warner
will report its first-quarter earnings before the market opens on Wednesday. It’s expected to post a profit of 64 cents a share on sales of $6.81 billion. In the same quarter of 2011, it reported earnings of 58 cents a share on revenue of $6.68 billion.

Analysts will be listening to see how ratings and ad rates are trending at CNN and TNT, where viewership declined in the first quarter, as well as TBS, where ratings were up.

Thursday morning will see Viacom VIA.B make its report. Analysts are looking for a fiscal second-quarter profit of 90 cents a share on $3.33 billion in sales, compared with a profit of 72 cents, or $3.27 billion, in the year-ago period.

Viacom has been trying to figure out how to revive ratings at MTV for some time. In the first quarter the decline was 10%. Worse for Viacom, the kids channel Nickelodeon has seen ratings fall of the cliff, with a decrease of nearly 30% in the March period.

-David B. Wilkerson

Twitter: @dbwilkerson

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